Safeguard Scientifics, Inc. ( SFE)

Q1 2011 Earnings Call Transcript

April 27, 2011 9:00 p.m. ET

Executives

John Shave, VP of Business Development and Corporate Communications

Peter Boni - President and CEO

Steve Zarrilli - SVP and CFO

Analysts

Greg Mason - Stifel Nicolaus

Matt Dolan - ROTH Capital Partners

Presentation

Operator

Good day ladies and gentlemen and welcome to Safeguard Scientifics’ first quarter 2011 results conference call. At this time all participants are in a listen only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instruction).

I would now like to introduce Mr. John Shave, Vice President of Business Development and Corporate Communications. You may begin.

John Shave

Good morning and thank you for joining us for our first quarter financial results conference call and update. Joining me on today’s call are Peter Boni, Safeguard’s President and Chief Executive Officer, and Steve Zarrilli, Senior Vice President and Chief Financial Officer.

During today’s call Peter will review highlights first quarter 2011 highlights and other developments. Then Steve will discuss Safeguards’ financial results and strategies. After that we’ll open the line for your questions.

Before we begin I must remind you that today’s presentation includes forward-looking statements. Reliance on forward-looking statements involve certain risks and uncertainties, including future performance of our partner companies, the risks of acquisition or disposition of interests in our partner companies, capital spending by customers, regulatory and economic conditions generally, as well as the development of the life sciences and technology markets and other uncertainties that are described in our SEC filings.

During the course of today’s call words such as except, anticipate, believe and intend will be used in our discussion of goals or events in the future. Management cannot be certain that final outcomes will be as described today. We encourage you to read Safeguard’s financial filings with the SEC, including our Form 10-K.

The company does not assume any obligations to update any forward-looking statements made today. Now here is Safeguard’s President and CEO, Peter Boni.

Peter Boni

Thanks John and thank you all for joining us today for updates on Safeguard Scientifics and our partner companies. The results for the first quarter ending March 31st were distributed early today. We are encouraged by advances across several fronts of our strategic game plan.

First, we continue to drive aggressive growth and milestone achievements in our partner companies. Specifically, we provided $9 million of follow-on funding to technology company, MediaMath in part to expand global sales and marketing initiatives and then to fuel technology development.

Next, we deployed $5 million of equity capital into ThingWorx, an innovative, technology partner company that is addressing a growing market at managing data from connected devices. And then subsequent to the quarter, we deployed $25 million of equity capital in to PixelOptics; a medical technology company that’s developed and will soon be commercializing the world’s first and only electronically focusing prescription eyewear.

I will talk more about MediaMath and PixelOptics a bit later.

Lastly, we took our first substantial step towards our strategic initiative of augmenting Safeguards’ existing resources with alternative sources of capital. Safeguard reached an agreement in principle to acquire a significant equity interest in an operating and management enterprise of a mezzanine lending company, and to commit a total of $30 million of capital to such venture over several years.

The strategic partnership will be formed with the private company which provides subordinated debt and structured equity financing. Our capital will be deployed alongside private capital committed to funds managed by the company.

It’s anticipated that initially the fund will have in excess of $60 million available for lending and operations, including our capital and committed capital from a few limited partners. This entity will deploy capital principally in subordinated debt financing for a lower and middle market enterprises operating generally in the mid-Atlantic region, as well as other geographies strategic to Safeguard.

This initiative not only allows us to directly augment our available capital, but also it squarely positions Safeguard with an advantage to address both equity and debt capital needs of enterprises.

The mezzanine company will be managed by an experienced team of subordinated debt lenders, and together, we will be able ramp up operations quickly.

For sometime now, we’ve stated that we’ve been working to develop an approach to leverage alternative pools of capital. We see a gaping opportunities to provide capital to both private and public enterprises in small to mid markets. This initiative will augment what we already do; provide meaningful and flexible capital, plus operational support services to growth stage businesses.

As an equity partner in this [mezzanine] of lending enterprise will have expanded our platform and created a framework which we intend to replicate to take advantage of other opportunities to leverage other sources of capital, and external management expertise in a fashion that produces income and profit participation for the company.

This initiative further Safeguard’s capability and enhances our strategy to seek equity or debt positions via significant minority or majority stakes in public or private companies with our own capital and manage capital from strategic and financial sources.

Steve will provide some further detail later on in the call, and then we’ll the name under which the joint venture will operate and other details of the transaction at a future date.

In the mean time, looking more broadly at external US factors; the US economy continues a slow recovery after the 2008 nosedive, but more over positive momentum and global capital markets continues despite any instability in the Middle East and Northern Africa and despite any natural disasters in Japan.

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